Australia: Shale gas exploration and production in Australia

Shale gas is the gas trapped within deep shale rock formations.
The low permeability and porosity of shale means that gas can only
be recovered through hydraulic fracture stimulation, or fraccing;
that is by drilling then injecting large amounts of water, sand and
chemicals at high pressure into shale to release trapped gas.

Until recently it was almost impossible to recover shale gas.
However, developments in fraccing and horizontal drilling
techniques have enabled shale gas to be recovered at a cost which
is competitive with other sources of natural gas.

Source: US Energy Information Administration

Success of shale gas production in the US

Shale gas production has been hugely successful in the US, with
20-26 trillion cubic feet (Tcf) of shale gas produced annually for
the past 10 years, causing the domestic price of gas to plummet
from US$8.00/thousand cubic feet (Mcf) in 2008 to US$3.75/Mcf in
2010. Shale gas now represents 25% of total US gas production and
is likely to transform the US from a gas importer to a gas
exporter.

Can Australia replicate this success?

Australia is estimated to have approximately 396 Tcf of shale
gas resources, of which 288 Tcf is estimated to be held in Western
Australia's (WA) onshore basins (this amounts to double
WA's conventional offshore gas reserves) and 85 Tcf in the
Cooper Basin spaning Queensland and South Australia. One Tcf of gas
can provide enough energy to power a city of one million people for
20 years.

Australian gas producers are likely to be attracted to these
shale gas resources given:

These factors have resulted in the price of domestic gas from
conventional sources rising significantly, particularly in WA where
the gas price is now three times that of the Eastern states. The
realisation of shale gas resources has the potential to reduce
prices as the supply of gas to the market is increased.

However, there are several critical differences between
Australia and the US which will impact upon the success of the
Australian shale gas industry. These include:

like the US all shale deposits differ and it remains to be seen
which shale deposits in Australia will be more economic than
others

Australian gas industry – the recovery of shale gas
requires specialised equipment and experience to facilitate
hydraulic fracturing, and to produce horizontal wells. Australia
has very few resources, including experienced personnel, to produce
these specialised wells

cost – a shale well in Australia is currently estimated
to cost A$7 million, compared with only US$2-3 million per well in
the US

infrastructure – Australia does not have the same
coverage of infrastructure (including gas distribution networks) as
the US, particularly in remote sites where shale resources exist,
such as the Canning Basin in WA and the Galilee Basin in
Queensland.

Environmental concerns over fraccing for shale gas

A major hurdle to the success of the shale industry is the
ability of regulators to deal with community concerns about the
environmental impact of fraccing.

Fraccing is a very water intensive operation. There are existing
concerns that water aquifers have been markedly depleted from coal
seam gas fraccing activities in New South Wales and Queensland near
prime agricultural areas.

Of greater concern, however, is the fact that water returned
from fraccing ("produced water") contains salts and other
chemicals. The safe disposal of produced water is crucial to avoid
the contamination of water resources and the dissemination of
dangerous chemicals into the environment. However these issues may
be less pronounced in the shale industry as shale reserves are
often located in more remote locations.

Shale gas and carbon pricing

The implementation of a carbon price provides an incentive for
the use of natural gas over other sources of energy, given the low
carbon footprint of natural gas. However, due to high methane
emissions, the carbon footprint of shale gas is greater than that
for conventional gas or oil. Despite this, the carbon emissions
from shale gas are still estimated to be between a third to a half
that of coal.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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